Implications of environment rule changes
Potential Rule Changes
Some WTO members that support ethical trade schemes are pushing for clarification on trade law relating to eco-labels, on the use of discrimination on the basis of production and processing methods (PPMs) and on the relationship between trade and environment more generally.
It is possible that there will be debate on this issue in the Seattle Round. Whilst it is not definite that revision of the TBT is on the agenda for Seattle, some issues relevant to the TBT may come in via the back door of the eco-labelling debate.
The main areas of dispute are:
- Whether forest certification should be regarded as a 'standard' in TBT terms and therefore be subject to WTO disciplines.
- Whether the scope of the TBT Agreement actually includes non-product related PPMs.
The relevance of the PPM debate to eco-labels and forest certification is that they both rely on non-product related PPM criteria.
It is necessary for a rule change regarding distinctions being made between goods on the basis of PPMS to be agreed by a majority of WTO Members.
A number of observers have noted that there is no legal reason why a WTO block on processing discrimination cannot be rescinded. For example, Page notes that if the WTO has been able to expand the coverage from goods to services and intellectual property, the definition of goods according to process as opposed to physical description should not be disallowed in legal terms (1998: 36). Moreover, some recent Appellate Body decisions have suggested that non-product related PPM distinctions may be permitted in some cases, for example the 'shrimp-turtle' ruling. The Appellate Body ruled that a trade measure aimed at protecting exhaustible natural resources, even when based on a PPM was admissible and could fall under the scope of the GATT Article XX(g) exceptions (Senadhira, 1997).
However, the issue is extremely contentious and it will be necessary to convince the many members who are opposed to movement on PPMs that trade impediments will not increase as a result. India for example made a complaint against the Appellate Body's ruling on the shrimp-turtle dispute regarding PPMs on the ground that it would 'open the floodgates to unilateral measures aimed at discrimination based on processes and production methods' (Ruddell et al, 1999). Other members opposed to the inclusion of non-product related PPMs include Korea, Philippines/ ASEAN and Egypt (WTO, 1996). In contrast the EU and Norway and Switzerland are keen for clarification on the issues of eco-labelling and PPMs (International Centre for Trade and Sustainable Development, 1999: 6). Perhaps significantly the US is opposed to change regarding PPMs.
Implications of WTO rule changes
It is still unclear whether forest certification and indeed eco-labels will be directly affected by changes in the world trade rules. However recent debates and interpretations of trade law can give some clues to the likely effects if:
- the TBT is clarified to specify forest certification as a 'standard'
- special rules are adopted for the design and implementation of certification schemes
- there is no change
(a) Forest certification is specified as a 'standard'
If the scope of the Agreement on TBT is extended to forest certification so that forest certification were treated as a standard, it would have to pass the MFN test. There would have to be measures to ensure that private voluntary forest certification schemes were not discriminatory and did not restrict trade. However, as a standard forest certification would not have to pass the NT test which has the added criteria of 'no more trade restrictive than necessary' and prohibits distinctions based on non-product-related PPMs. If governments decided to use forest certification as a tool such that it became mandatory, in trade law it would be a regulation and would have to meet the NT criteria. So, if TBT were extended to cover forest certification proposed bills to require government contractors to use certified wood when working on publicly funded projects would almost certainly be outlawed.
Looking more closely at the MFN and TBT requirements, voluntary, private certification schemes would have to:
- be non-discriminatory
- be designed to meet environmental objectives
- encourage harmonisation, or recognition of equivalence
- use international standards where they exist
- be verifiable
- be transparent
- have special treatment for developing countries
(adapted from Bass 1997a).
In international legal terms, the TBT and the WTO system recognise ISO as the competent body for developing international standards. It is closely associated with the TBT committee and makes formal presentations at WTO meetings (WTO, 1999b). Whilst it is a private body, ISO has many government links. FSC is also private, based on non-governmental and business organisations, but does not have the same access to WTO bodies. Limited access to WTO forums and transparency of the decisions made therein is an issue that is receiving increasingly vocal criticism.
ISO 14000's process approach, compared to the performance approach of FSC, means that it does not break WTO rules regarding PPMs. Therefore there would be pressure on FSC schemes to conform with what is regarded as the international standard.
The democratic international structure of FSC means that there would be few problems regarding intentional discrimination or trade restrictiveness. Similarly the requirements for transparency and verification should not be a problem. However FSC benchmarks may be interpreted as being higher than necessary to meet domestic environmental standards. TBT calls for the use of international standards where they exist and are locally feasible, which may favour the ISO approach (Bass, 1997b: 30). More significantly, it may mean pressures for FSC criteria and indicators to be made less rigorous. The free trade discipline of the WTO leads to pressures for harmonised standards with regard to the environment. The WTO tends to prefer environmental issues to be dealt with in a simple way that easily translates to the trade policy context, i.e. quick, simple, common denominator solutions to environmental questions but such solutions do not always exist.
A more appropriate approach where environmental problems are local and differ according to context may be to promote the mutual recognition of national standards. In the forest sector there are a number of regionally based initiatives to develop criteria and indicators for sustainable forest management, and ultimately certification, e.g. the Montreal and Helsinki processes. In this forest sector, which is quite advanced compared to other natural resources, particularly for timber, the general trend is to develop approaches that place performance-based approaches within a procedural system.
Another problem with regard to TBT is FSC's social principals which may be not be permitted. The TBT deals with 'standards' and 'regulations' for health, safety, product quality and environmental protection purposes, it does not deal with measures related to working conditions, particularly those unrelated to health and safety. Direct links between labour and social standards to trade is not permitted under the WTO on the basis of the argument that countries should be able to benefits from their comparative advantage in cheap labour etc.
(b) Adoption of special rules for eco-labels and forest certification
Informal proposals have been made in the Committee on Trade and Environment for the development of a set of guidelines for voluntary eco-labelling schemes. Most recently this has been proposed by Norway under the heading 'Rules of the Road' (WTO 1999a). Such guidelines would draw on work by the UNEP and ISO. This proposal is by no means generally accepted, but it is possible that should eco-labels be debated it will emerge as a compromise solution to the uncertainty that exists and may have parallels with the TBT's Code of Good Practice for standards as already defined under the TBT.
The extension of such a set of rules by the WTO to voluntary initiatives sector may be problematic. First it would involve nation states imposing a legally-binding code on non-governmental bodies and this to many observers would undermine the legitimacy of the schemes and be an unpopular and controversial move on the part of governments. Second, as with the first scenario, the inclusion of forest certification schemes under the auspices of WTO regulations could threaten the survival of schemes. NGOs and other private bodies implementing eco-labels would expose themselves potentially to legal challenge if WTO Members countries considered that the code were breached and trade barriers created.
The drafting of the guidelines would have to be incredibly careful in order to avoid stretching or compressing of their meaning as so often happens in a legalistic conflict setting. As with other forms of law, the true meaning of trade law only becomes apparent when interpreted in the context of specific cases.
Another issue regarding drafting, particularly if the ISO model is followed by the TBT, is the level of Southern participation. As a privatised multilateral system, ISO has been criticised for its heavy meeting schedules, limited transparency and low levels of representation of developing countries, particularly development interests (Dillier, 1999: 124). It is effectively 'in the hands of large business interests and professional standard setters' rather than environmental NGOs or smaller countries (Mankin, 1998: 24)
One of the more likely scenarios is that nothing happens in terms of clarifying the legal position of forest certification schemes, or at least for a few years. Three types of trade and environment issue, in terms of how they may take the debate forward, have been identified by Gary Sampson, a former director of the WTO (Sampson, 1999). The current conflict over eco-labels fits belongs in the third category where change is only feasible in the context of a formal changes in rules, usually only possible in comprehensive trade Rounds rather than on the basis of consultation or collective approval. The fact that most environmental labelling is process-related and the opposition of many developing countries to permitting PPMs-related criteria means that it is likely that in-depth discussion during a formal Round may be required to institute change and generate clarification. The range of opinion opposed to changes regarding PPMs and eco-labels, including the USA, at this point in time so close to the Seattle meeting suggests that change is unlikely, unless it comes in through the back door.
In the business as usual scenario it would prove difficult to get international agreement and as such the present stalemate would continue and trade law with respect to the environment would continue to be decided on a case by case basis. This is not satisfactory approach because of its reliance on the identification of violations, complaints being made and then the heavy cost of dispute settlement, both to complainants, defendants and the system. This conflictual process may potentially weaken the dispute-settlement process and the trade regime itself. These points are elaborated by the International Institute for Sustainable Development (1999), which is calling for a WTO Agreement on the Environment as a long-term goal.
Analysis from a trade policy perspective offers no immediate answers to the implications of the international trade policy environment for ethical trade schemes in the forest sector. Even if action is taken to eliminate the uncertainty at Seattle, it is likely that things will remain as they are for some time, with continued suspicions on the part of many Southern countries with regard to the apparent protectionist motives of certification schemes.
Equity approach
However, one can look at this from another perspective, the equity perspective.
Analysis from a trade policy angle leads to an impasse, at least in the short term. However, one can look at this from another perspective, the equity perspective. An equity perspective looks at the wider developmental implications of ethical trade schemes, including the perspectives from smaller producers. Recent studies have indicated that smaller producers have difficulties in meeting the costs of inspection and certification rather than meeting the standards, e.g. Scrase (1999). It may be argued that schemes that operated to the advantage of smaller producers would meet the requirements of trade policy in terms of non-discrimination.
Some observers are considering a non-binding code of conduct or procedural guidelines for non-governmental initiatives. Such guidelines would use equity concerns as a starting point and would ensure that any eco-labelling initiative:
- Takes into account the needs of the smallest producers;
- Ensures that there is Southern participation in the development of principles;
- Contributes towards the establishment of local certifiers and other measures to ensure that resource-poor producers are able to participate in schemes.
These guidelines would be voluntary and non-binding. In the best scenario, private sector voluntary schemes would be instrumental in drawing up such a code because of the need for guidelines and principles to be translated to practice. In the forest sector private sector investment is outstripping investment by the public sector and multinational businesses are having increased influence (World Commission on Forests and Sustainable Development, 1999: 26)
The application of voluntary guidelines might reduce the chance of conflict with WTO rules arising from the complaints and disputes procedure, as they would demonstrate that the potential for trade impediments had been kept to a minimum. Guidelines to ensure that schemes are as participatory as possible and include smaller developing country producers, may reduce the current hostility from the South. This tends to be based on protectionist fears.